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Are the Trade Deficits of Less Developed Countries Stationary?. Evidence for African Countries

  • Holmes, Mark J

    ()

This study tests for the stationarity of current account deficits for a sample of twenty six African countries. For this purpose, a new test advocated by Breuer, McNown and Wallace (2002) is employed which allows one to test for unit roots in heterogeneous panel datasets. This SURADF test involves estimating ADF regressions within a seemingly unrelated regression framework. While the benefits from creating a panel to overcome low test power are well known, this particular test also offers key advantages over existing alternative panel data unit root tests. Unlike previous tests, we are able to identify which members from within the panel are responsible for rejecting the null hypothesis of joint non-stationarity. In addition to this, the SURADF test does not presume disturbances that are independently and identically distributed. Using annual data covering the period 1960-2000, this study finds strong evidence in favor of current account mean-reversion for twenty one African countries.

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Article provided by Euro-American Association of Economic Development in its journal Applied Econometrics and International Development.

Volume (Year): 3 (2003)
Issue (Month): 3 ()
Pages:

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Handle: RePEc:eaa:aeinde:v:3:y:2003:i:3_13
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  1. Pasaran, M.H. & Im, K.S. & Shin, Y., 1995. "Testing for Unit Roots in Heterogeneous Panels," Cambridge Working Papers in Economics 9526, Faculty of Economics, University of Cambridge.
  2. Wickens, M. R. & Uctum, Merih, 1993. "The sustainability of current account deficits : A test of the US intertemporal budget constraint," Journal of Economic Dynamics and Control, Elsevier, vol. 17(3), pages 423-441, May.
  3. Jerry Coakley & Farida Kulasa & Ron Smith, 1996. "Saving, Investment and Capital Mobility in LDCs," Archive Discussion Papers 9610, Birkbeck, Department of Economics, Mathematics & Statistics.
  4. O'Connell, Paul G. J., 1998. "The overvaluation of purchasing power parity," Journal of International Economics, Elsevier, vol. 44(1), pages 1-19, February.
  5. Trehan, Bharat & Walsh, Carl E, 1991. "Testing Intertemporal Budget Constraints: Theory and Applications to U.S. Federal Budget and Current Account Deficits," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(2), pages 206-23, May.
  6. Coakley, Jerry & Kulasi, Farida, 1997. "Cointegration of long span saving and investment," Economics Letters, Elsevier, vol. 54(1), pages 1-6, January.
  7. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, vol. 108(1), pages 1-24, May.
  8. Sarno, Lucio & Taylor, Mark P., 1998. "Real exchange rates under the recent float: unequivocal evidence of mean reversion," Economics Letters, Elsevier, vol. 60(2), pages 131-137, August.
  9. Pattichis, Charalambos & kanaan, Mona, 2001. "Is Lebanon’s Trade Deficit Sustainable? A Cointegration Analysis," Economia Internazionale / International Economics, Camera di Commercio di Genova, vol. 54(1), pages 49-56.
  10. Gundlach, Erich & Sinn, Stefan, 1991. "Unit root tests of the current account balance: implications for international capital mobility," Kiel Working Papers 495, Kiel Institute for the World Economy.
  11. Papell, David H., 1997. "Searching for stationarity: Purchasing power parity under the current float," Journal of International Economics, Elsevier, vol. 43(3-4), pages 313-332, November.
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